How will this year’s election result affect the infrastructure and muni market?
I think most people will agree that our infrastructure is woefully underfunded, just drive along your neighborhood streets, your bridges, your tunnels, and there’s a lot of improvement that can be done.
The American Association of Civil Engineers has proposed 3.6 trillion dollars, 3.6 trillion dollars, in spending over the next four years to improve our infrastructure.
Now, neither candidate is proposing that, but they are proposing increases to infrastructure spending. For example, Hillary Clinton has proposed upwards of 500 billion in infrastructure spending, coming in different forms. Roughly 225 billion in direct government spending, 25 billion going into an infrastructure fund that could be levered to generate another 250 billion in spending. Whether that is, again, federal government spending or municipal spending, unclear.
Donald Trump one-upped Hillary Clinton and said, well, he wants to spend 1 trillion dollars in infrastructure spending, but there’s not a lot of detail around that. One other thing that Hillary has proposed is to revive the dormant Build America Bond program. That was back in 2009, 2010, where municipalities were incentivized to issue taxable municipal bonds.
And the incentive was a 35% subsidy from the federal government to pay their interest costs. Now, that would be good for the municipal market, that reviving of the Build America Bond program, because it would take tax-exempt issuants out of the market and put it into the taxable arena. So, less tax-exempt issuants, less supply, more demand. That’s a positive.
Their initial proposal around the 500 billion and a trillion dollar—1 trillion dollar by Donald Trump—it’s unclear. Depends on which form that comes in. If it’s more supply into the municipal market—tax-exempt supply—that could test the depth of the demand of municipal bonds.
So, it’s unclear, but again, it…it all gets back to what flexibility do you have or does your manager have in their mandate?
Do they have flexibility to maneuver? Whether it’s to maneuver in and out of taxable bonds, for example. That would help to preserve a client’s value, if a manager had that flexibility.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
By Daryl Clements